The Pandemic is Changing the Way We Do Things

You don’t have to look very far to see how quickly innovation changes our world. The greatest generation saw the advent of credit cards, power steering, and transistor radios. Baby Boomers remember the arrival of electronic fuel injection, audio cassettes, and an oral vaccine for polio. Gen Xers witnessed the emergence of the worldwide web (www), which has become a defining feature of modern life. Millennials and Gen Z saw the arrival of smartphones, social media, and video gaming competitions.1, 2, 3

Sometimes change is gradual. Other times – like today – it occurs at an accelerated pace. As the coronavirus intersects with technology, we’re seeing a variety of innovations. Some may change life in small ways, others could transform the way we live and work.

Here are a few objects and practices that may be subject to change:

  1. Saying hello. Traditional forms of greeting are rapidly becoming outdated. There is no question it feels odd not to shake hands when introduced to someone, but safe social distancing makes it necessary. The Emily Post Institute offered some suggestions:

“Greetings that involve touching are still not recommended at this time, so perfect your waves (you know, your ‘professional wave’, your ‘zoom-meeting wave’, your ‘I-love-you-Grandma wave’, your ‘I-haven’t-seen-you-and-I’m-trying-so-hard-not-to-hug-you wave’) and use your tone of voice to match the occasion.”4

  1. Touching screens. Touchscreens are everywhere: airline kiosks, office building directories, ATMs, and gas pumps, just to name a few. They have made many tasks easier and more convenient. However, concerns about cleanliness and germ-passing have been amplified by the coronavirus. Now, it’s likely touchless technology will replace touchscreens in public venues, reported Patrick Seitz of Investor’s Business Daily.5

In the interim, people may begin to rely on smartphone apps, personal touchscreen pens, or individual touchscreen protectors to avoid touching touchscreens, reported David Muhlbaum and Kyle Woodley of Kiplinger.5, 6

  1. Just-in-time production. When it was first developed, just-in-time (JIT) production was hailed as a brilliant system that maximized output and efficiency, making companies more competitive. The pandemic exposed the vulnerabilities of lean manufacturing and organizational streamlining.7

“We have discovered that our supply chains were not robust at all and far too finely tuned…We are out of inventory on emergency supplies, drugs, medical equipment, cleaning supplies and, yes, the ubiquitous toilet paper. Our supply chains are failing, and production is slow to respond,” reported Rich Weissman on March 20 in Supply Chain Dive. We may see companies begin to hold more inventory and build supply chains that emphasize domestic suppliers.8

  1. Closing offices. From cubicles to hot-desking to community workspaces, open-plan offices were intended to foster collaboration, build relationships, and lower construction costs, among other benefits. Prior to the pandemic, some companies had discovered open offices didn’t deliver the benefits promised.9

Now, with the arrival of coronavirus, open offices may become obsolete, reported Geoffrey James of Inc. “Because open plan designs make social distancing impossible, companies that don’t implement universal Work from Home will be forced to re-implement private offices or, at least, rebuild the cubicle farms, which provide at least some barrier to the spread of disease.9, 10

  1. Pursuing multiplanetary life. Okay, the potential for public space travel has little to do with the coronavirus, other than the timing of the most recent launch, but it is intriguing. The May 2020 NASA/Space X Demo-2 mission to the International Space Station could open space to everyone. Citizens of the world may be able to orbit the Earth, and travel to the Moon, Mars, and beyond.11

They may find automated spacecraft in the great beyond, too. Donald Goldsmith and Martin Rees of Scientific American reported, “People venturing into space are fragile: They require a continuous supply of oxygen, water, food, and shelter. They must endure long intervals of weightlessness…And their loss, when it occurs, casts a pall over our would-be joy of identifying with their exploration. In contrast, automated spacecraft require only a power supply. They cost far less than humans do, and we know how to improve them every year. And, if they fail, we lose only dollars and scientific results.”12

As we weather the changes that accompany the coronavirus, it may be beneficial to consider an idea from a recent article in The Economist, which reported:13

“With the world in upheaval, enterprising minds are already whirring…[believing] that social changes accelerated by the crisis, such as food delivery, telemedicine, and online education, will eventually generate lucrative business opportunities. They will also expect the economic slump to wipe out incumbents, muting competition, and freeing up space and manpower…”

Sources:

1 https://www.thoughtco.com/fifties-to-nineties-inventions-4144741

2 https://www.entrepreneur.com/slideshow/295841#6

3 https://www.pcmag.com/news/the-greatest-gaming-tournaments-in-the-world

4 https://emilypost.com/advice/the-etiquette-of-social-distancing-around-coronavirus/

5 https://www.investors.com/news/technology/public-touch-screens-coronavirus-petri-dishes/

6 https://www.kiplinger.com/slideshow/business/t057-s001-things-that-will-disappear-soon-pandemic-edition/index.html

7 https://www.ifm.eng.cam.ac.uk/research/dstools/jit-just-in-time-manufacturing/

8 https://www.supplychaindive.com/news/lean-supply-chain-jit-inventory-covid-19/574693/

9 https://www.inc.com/geoffrey-james/3-obsolete-business-strategies-that-pandemic-has-revived.html

10 https://nycofficesuites.com/2017/10/26/key-advantages-open-floor-plan-office/

11 https://www.spacex.com/human-spaceflight/

12 https://blogs.scientificamerican.com/observations/do-we-really-need-to-send-humans-into-space/

13 https://www.economist.com/business/2020/05/16/creative-destruction-in-times-of-covid (or go to https://peakcontent.s3-us-west-2.amazonaws.com/Peak+Documents/Aug_2020_TheEconomist-Creative_Destruction_in_Times_of_COVID-Footnote_13.pdf)

This material was prepared by Carson Coaching. Carson Coaching is not affiliated with the named broker/dealer or firm.

Dollar Weakness May Continue

Economic Blog

The US dollar was remarkably strong during the first quarter of 2020, benefitting from the flight to safety and rallying to nearly a 10% year-to-date gain at the stock market’s low point on March 23. However, as equity markets have recovered, and the US has continued to fight the COVID-19 pandemic, the dollar has given up nearly all of those gains. We think this trend may continue, and if so, it would have important implications for a range of asset classes.

As shown in the LPL Chart of the Day, the Bloomberg Dollar Spot Index, a more diversified basket than the commonly cited DXY Index, is nearing a critical uptrend line. A break of this support could mean that weakness seen over the past few months is more than just an unwinding of the flight to safety. Through Wednesday, the index was down more than 1% for the week and tracking toward its fourth straight weekly loss.

This isn’t just a technical story though. As we explored last month, rising twin deficits have historically been followed by a weaker dollar, meaning the fundamentals support this move as well.

View enlarged chart.

The commodity rally is another reason to believe the market may be looking toward a weaker dollar. Commodities are typically viewed as having an inverse relationship with the dollar since the dollar is effectively the denominator of a hard asset. Gold prices are up more than 20% year to date, copper just traded to its highest level in more than two years, and silver prices have appreciated 28% this month alone.

As for the implications of a weaker dollar, according to LPL Chief Market Strategist Ryan Detrick, “a weaker US dollar may be a slight negative for US consumers’ buying power, but for investors’ portfolios the implications are overwhelmingly positive. Commodities are rallying, US multinational companies benefit from foreign buyers being able to afford more of their goods, and international stocks do well as their underlying currencies appreciate.”

Recent history bears this out. The last calendar year that saw a significant dollar decline was 2017 when the Bloomberg Dollar Index fell more than 8%. The S&P 500 Index rallied more than 19% on a price return basis; however, international stocks fared even better. The MSCI EAFE Index and MSCI Emerging Markets Index gained 22% and 34%, respectively, and 2017 represented the only year since 2012 that either outperformed the US.

 

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index and market data from Factset and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

  • Not Insured by FDIC/NCUA or Any Other Government Agency
  • Not Bank/Credit Union Guaranteed
  • Not Bank/Credit Union Deposits or Obligations
  • May Lose Value

Midyear Outlook 2020: The Trail to Recovery

LPL Financial Research Midyear Outlook 2020: The Trail to Recovery

LPL Financial Research is looking ahead for new ways to face current challenges and prepare for better times. Use our Midyear Outlook 2020 to chart a path to eventual economic and market recovery. Plus, learn how stocks may predict the next president!

It’s still going to be a challenging environment with significant uncertainty that may lead to more volatility for the next few months, especially with the highly anticipated presidential election in November. Still, we continue to encourage investors to focus on the fundamental drivers of investment returns and their long-term financial goals.

LPL Research’s Midyear Outlook 2020 provides our updated views of the pillars for investing—the economy, stocks, and bonds. As the headlines change daily, we encourage you to continue to look to these pillars as trail markers on your investment journey, and to the Midyear Outlook 2020 to help provide perspective on facing these challenges now and preparing to move forward together.

Access Here: Digital version 

Market Signals Podcast:
The LPL Research strategists discuss the new Midyear Outlook 2020: The Trail to Recovery with insights on charting a path to eventual economic and market recovery and updated forecasts for the rest of 2020.

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. The economic forecasts may not develop as predicted. Please read the full Midyear Outlook 2020: The Trail to Recovery publication for additional description and disclosure. This research material has been prepared by LPL Financial LLC

Has the Economy Begun to Recover?

As coronavirus restrictions ease and businesses reopen, the American economy should gain steam. Data released in May and June, including employment, payroll, and manufacturing numbers, suggested the economy may have hit bottom in April.1

The stock market, which reflects what investors think will happen in the future, appears confident the economy will recover relatively quickly. After dropping 1,000 points in late February and early March, the Standard & Poor’s 500 Index bounced back and has moved higher. The swing higher included the Index’s biggest 50-day rally in history, a gain of 37.7 percent, reported Pippa Stevens of CNBC.2

The bond market also signaled expectations for economic improvement. Bond yields have been very low in 2020, in part because the Fed funds target rate is near zero. In May and early June, bond yields began to move higher. “There’s been a disconnect between the two markets [stock and bond], and today’s action was the type of correlation they normally should have with stocks and rates rising, as bonds sell off,” reported by Patti Domm of CNBC in early June.1

It’s difficult to know whether investors are being too optimistic or not optimistic enough because this recovery has a complicating factor: COVID-19. Even though people are returning to work, the virus has not disappeared, a vaccine has yet to be invented, and there is no known cure for the disease. As a result, the economy may advance in fits and starts.3

Demand and consumer spending are likely to accelerate slowly
For the economy to recover steadily, we need businesses to reopen and consumers to spend the way they did before the pandemic. Three factors may inhibit consumer spending as the economy reopens: COVID-19, unemployment, and higher savings rates:

COVID-19 caution. A May survey found more than half of Americans are eager to get haircuts and indulge in other personal services. More than 40 percent plan to begin shopping in retail stores again. However, the majority do not plan to patronize movie theaters, sporting events, or hotels; engage in air travel; or use public transportation for at least three months, according to S&P Global Market Intelligence. It’s possible that won’t change until we have a vaccine, an effective treatment, or a cure.4

High unemployment. A second factor affecting demand is unemployment. People who are unemployed, typically, spend less than they might have if they were employed.5

The May Employment Situation Report indicated U3, which is the official unemployment rate in the United States, was 13.3 percent. The U6 rate, which includes discouraged workers and part-time workers, was 21.2 percent.6, 7

Congress anticipated unemployment would increase and passed the CARES Act, which makes larger-than-normal unemployment benefits available to out-of-work Americans for a limited period of time. However, as Shawn Donnan and Catarina Saraiva of Bloomberg reported, almost one-third of authorized unemployment benefits have yet to be distributed because state unemployment systems have been overwhelmed. More than 40 million people filed for unemployment.8

As the economy reopens and people return to work, spending may increase.

Rising savings rates. The coronavirus crisis communicated the importance of emergency savings in a way few events could have. Americans appear to have received the message. In April, the U.S. personal savings rate increased to 33 percent. It’s possible the savings uptick was due to coronavirus restrictions and a dearth of spending opportunities. It’s also possible Americans have decided to begin saving more.9

The alphabet soup of economic recovery
Analysts have suggested we could see a V-, U-, W-, L-, or swoosh-shaped economic recovery. The letter refers to the shape of a chart showing gross domestic product (GDP), a broad measure of economic growth. Colby Smith of Financial Times reported:10

birds on sky

“The most optimistic forecast of the bunch – the V-shaped rebound – was once enthusiastically adopted, as some analysts likened lockdowns to a self-induced coma. But many investors and policymakers have now dismissed that idea, suggesting a much less robust resurgence after what may well be the worst economic downturn since the Great Depression.”

Bank of America surveyed global fund managers in mid-May and found just 10 percent anticipated a V-shaped recovery. The majority (75 percent) expected a more prolonged U- or W-shaped recovery, reported Ksenia Galouchko of Bloomberg.11 Of course, that was before May’s unexpected employment report.

It’s impossible to know exactly what the future holds. Too many parts are in motion for anyone to make predictions with certainty. The shape of our economic recovery depends on COVID-19 and medical innovation. If the virus disappears in warmer weather, we may see an upward swing as colder weather settles in and possibly bring a second wave of infection. This could lead to a slower economic recovery.

Until the world has access to vaccines that reduce infections and therapies that reduce fatality rates, life may not return to ‘normal.’ Recovery may take time. No matter how rapidly the economy recovers, our world is likely to be greatly changed.

Sources:

1 https://www.cnbc.com/2020/06/03/the-bond-market-appears-to-be-signaling-the-worst-is-over-for-the-economy.html

2 https://www.cnbc.com/2020/06/03/this-is-the-greatest-50-day-rally-in-the-history-of-the-sp-500.html

3 https://en.wikipedia.org/wiki/Bugatti_Chiron

4 https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/consumers-want-to-get-back-to-shopping-in-stores-but-are-wary-on-travel-8211-survey-58850629

5 https://economics.yale.edu/sites/default/files/jmp_0.pdf

6 https://www.bls.gov/news.release/empsit.nr0.htm

7 https://www.bls.gov/news.release/empsit.t15.htm

8 https://www.bloomberg.com/news/articles/2020-06-02/one-third-of-america-s-record-unemployment-payout-hasn-t-arrived?mod=article_inline

9 https://www.bea.gov/news/2020/personal-income-and-outlays-april-2020

10 https://www.ft.com/content/113529d8-cefb-41f1-a61d-cc12b194f685 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/Peak+Documents/Jul_2020_FinancialTimes-Just_One_in_10_Fund_Managers_Expect_V-shaped_Recovery_for_US_Economy-Footnote_10.pdf)

11 https://www.bloomberg.com/news/articles/2020-05-19/bofa-poll-shows-investors-doubt-this-stock-market-rally-can-last (or go to https://peakcontent.s3-us-west-2.amazonaws.com/Peak+Documents/Jul_2020_Bloomberg-BofA_Shows_Investors_Doubt_this_Stock_Market_Rally_can_Last-Footnote_11.pdf)

This material was prepared by Carson Coaching. Carson Coaching is not affiliated with LPL Financial and IAA.

The opinions voiced in this material are for general information only are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Economic forecasts set forth may not develop as predicted and are subject to change. Investing involves risk including loss of principal.

Why A Potential Democrat Sweep May Not Be A Market Worry

Market Blog

Based on the latest polling data, there’s growing consensus that former Vice President Joe Biden potentially may win the election and Democrats possibly may sweep Congress. Some might think this could be a negative for stocks, as a higher corporate tax rate that reduces earnings could be part of the Democratic platform.

Early writers of the US Constitution were worried about one party having too much power that could enable factions in Washington, DC, to enact more extreme policies and political ideals, upsetting the carefully balanced apple cart. As we noted in our recently released Midyear Outlook 2020, stocks historically have performed quite well when Congress has been split, although stocks actually have done better than most probably realized when the Democrats were in full control.

“Higher corporate taxes are quite likely should we see a potential Democratic sweep,” said LPL Financial Chief Market Strategist Ryan Detrick. “But to blindly say stocks will do poorly is quite a stretch, as historically stocks have done rather well under this .”

As shown in the LPL Chart of the Day, the S&P 500 Index has been higher 9 of the past 10 times and 15 of the past 18 times Democrats controlled both the White House and Congress. Although LPL Research anticipates a likely split Congress in November, with the list of overall worries growing, we don’t think a potential Democratic sweep should be at the top of investors’ list of worries.

View enlarged chart.

For more thoughts on our recently released Midyear Outlook 2020, check out our latest LPL Market Signals podcast, where we focus specifically on what we see happening the rest of 2020.

 

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

  • Not Insured by FDIC/NCUA or Any Other Government Agency
  • Not Bank/Credit Union Guaranteed
  • Not Bank/Credit Union Deposits or Obligations
  • May Lose Value

Does Your Company Offer a Retirement Plan?

One of the most discussed topics in the United States is retirement security. Few Americans have set aside enough savings to live comfortably throughout retirement. In fact, the most recent National Retirement Risk Index (NRRI)* found:1

“…half of today’s households will not have enough retirement income to maintain their pre-retirement standard of living, even if they work to age 65 and annuitize all their financial assets, including the receipts from a reverse mortgage on their homes. This analysis clearly confirms that many of today’s workers need to save more and/or work longer to achieve a secure retirement.”

One of the easiest ways to save for retirement is in an employer’s plan. However, not everyone has the opportunity to do so.

You may not have realized it, but less than 10 percent of private sector companies offer pension plans, and not quite 50 percent offer 401(k) or similar types of retirement plans. As a result, a significant number of working Americans don’t have a chance to save for retirement in a workplace plan.2

If you’re not sure whether your employer offers a plan, ask. If it does, gather as much information about the plan as you can. Here are a few questions to ask:

  1. What type of retirement plan is available? Some companies offer more than one type of retirement plan. If you work for a large company, you may have access to a pension plan or 401(k) plan. If you work for a smaller firm, you may have access to a SIMPLE IRA (Savings Incentive Match Plan for Employees Individual Retirement Account), SEP IRA (Simplified Employee Pension Individual Retirement Arrangement), or payroll deduction IRA (Individual Retirement Account).

Make sure you know what plans are available and when you are eligible to participate. Human Resources (HR) should have the information you need.

  1. Will your retirement income be taxable or tax-free? Your company’s 401(k) plan may allow different types of contributions. For instance, you may be able to make:
  • Traditional contributions. These contributions are made before taxes, so they may help reduce taxes today. Taxes will not be owed on the money contributed and any earnings until money is distributed from the plan.3
  • Roth contributions. These contributions are made with after-tax dollars, so there is no tax break today. However, contributions and any earnings are tax-free when you withdraw them, as long as the distributions are qualified.**3
  • Catch-up contributions. These contributions give all older Americans the chance to save more for retirement. Plan participants who are age 50 or older, can contribute an additional $6,000 to a 401(k) plan each year.4
  • After-tax contributions. These contributions may be available to those fortunate individuals who can afford to contribute the maximum to a workplace plan and still save more. As long as IRS rules are met, after-tax contributions may be transferred into Roth IRAs and deliver tax-free retirement income.5

It has been recommended Americans save 10 to 15 percent of their income for retirement.6 Not everyone can save that much, but it’s important to get started now, especially if your employer makes matching contributions.

  1. Does the company make a matching contribution? Some employers make matching contributions. The amount of the matching contribution varies from plan to plan. Regardless, it’s free money you receive just for participating in the plan.

For instance, a company might contribute 50 cents for every dollar you contribute, up to 5 percent of pay. If a match is offered, try to contribute enough to receive the full match. Even if you can only save a small amount, receiving the employer match can increase that amount significantly.

Once you have gathered information about your plan, there are other questions you’ll need to answer, too:

  1. How much should I save? The answer is likely to be: As much as you can afford to save. Let’s face it. The future is unknown. There are a lot of variables to consider when planning for retirement. For example, no one can be certain:
  • How long they will be able to work
  • How long they will live
  • How investment markets will perform
  • What may happen between now and then

As a result, it’s wise to save more rather than less. If you save more than you can spend, that’s wonderful. The assets you leave behind can help your spouse/partner, children, grandchildren, or favorite charity.

Another way to approach the question of how much to save is to determine a replacement ratio. How much of your current income will you need to live comfortably each year in retirement? Once you have a number, you can determine how much to save today.

  1. How should I invest my savings? Once you’ve decided how much to save, you’ll need to determine how to invest your savings. Many workplace retirement plans offer diverse options such as stocks, bonds, and other investments. Each investment offers distinct risks and rewards.

Before you choose investments, decide how much risk you are comfortable taking. In general, people who are further from retirement can tolerate more risk than people who are close to retirement.

If your employer offers a workplace retirement plan, count yourself fortunate and sign up. Don’t let uncertainty about how much to save or where to invest prevent you from participating. We are happy to help you calculate a replacement ratio, decide how much to save, and evaluate investment choices. Just give us a call.

* The NRRI estimate includes income from Social Security benefits, retirement plans, non-retirement plan savings, and homes. It does not include income from work in retirement.1

**Withdrawals of contributions and earnings from a designated Roth 401(k) account are tax-free and penalty-free as long as the account is held for at least five (5) years and distributions are made at age 59-1/2 or later, or because of disability or death.3

Sources:

1 https://crr.bc.edu/wp-content/uploads/2018/01/IB_18-1.pdf (Pages 1-2, 7)

2 https://www.bls.gov/ncs/ebs/benefits/2018/ownership/private/table01a.htm

3 https://www.irs.gov/retirement-plans/roth-comparison-chart

4 https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-catch-up-contributions

5 https://www.irs.gov/retirement-plans/rollovers-of-after-tax-contributions-in-retirement-plans

6 https://www.cnbc.com/2019/09/30/salary-needed-to-save-15-percent-of-your-income-and-retire-with-1-million-dollars.html

 

This material was prepared by Carson Coaching. Carson Coaching is not affiliated with the named LPL Financial and IAA.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

There are hypothetical examples provided and they are not representative of any specific investment or scenario.

Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax-free but other state and local taxes may apply.

This is not intended to be a substitute for specific individualized tax advice. We suggest you discuss your specific tax issues with a qualified tax advisor.

 

Does a Weak First Six Months Mean Trouble?

Written by

The wild ride of 2020 continues, with the S&P 500 Index down 20% in the first quarter and up 20% in the second quarter. Much like dropping a 20 dollar bill and picking it up, this doesn’t mean you are 20 dollars wealthier. Down 20% and then up 20% actually comes out to a 4% drop for the first half of the year.

What does a negative first half of the year tell us? Turns out, gains could be hard to come by the second half of this year. “Although 2020 is like nothing we’ve seen before, the fact of the matter is a weak first half of the year could mean weaker than normal returns for the rest of the year,” according to LPL Financial Senior Market Strategist Ryan Detrick.

In fact, the S&P 500 had been higher in the first six months of the year a record nine consecutive years before being lower in 2020. Since 1950, there were 48 times when the first six months were higher and the rest of the year gained 77% of the time and added 5.8% on average those final six months. Compare that with when the first six months of the year were lower 21 times, the final six months were higher only 52% of the time and up only 1.2% on average.

As shown in the LPL Chart of the Day, a move higher is quite likely after strength in the first six months of the year, while very modest gains could be in the cards if those first six months underwhelm.

View enlarged chart.

Be on the lookout for our Midyear Outlook 2020, set to be released on July 14, for more of our thoughts on what the second half of 2020 could bring. Last, don’t forget to listen to our latest LPL Market Signals podcast, where we discuss trends impacting markets right now.

 

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

  • Not Insured by FDIC/NCUA or Any Other Government Agency
  • Not Bank/Credit Union Guaranteed
  • Not Bank/Credit Union Deposits or Obligations
  • May Lose Value

Coping with Pandemic Stress

If your stress and anxiety levels are reaching a breaking point, you’re not alone. A recent Kaiser Family Foundation (KFF) poll found 45 percent of adults in the United States are feeling worried and stress related to the coronavirus. Steps taken to reduce the loss of life – social distancing, non-essential business closures, remote work, lack of daycare, shelter-in-place orders, online school – have caused many people to feel overwhelmed or isolated or both. Anxiety has been triggered by uncertainty about the future and concern loved ones may become ill.1

Fortunately, there are actions we can take to stay calm and carry on. For instance, you can:

  1. Take a news detox. Being bombarded with news and information can be distressing and take a toll on your well-being. As a result, it may benefit you to take a break from watching, listening, and/or reading pandemic updates. Reducing social media consumption may help, too.2

Use the extra time for activities that are more constructive and less upsetting. You could listen to music, practice yoga, meditate, listen to a funny audiobook, go for a walk, or do something else you enjoy.2

  1. Make it about you. For some people, stress and anxiety negatively affect immune response. Take some steps to boost your immune system. Harvard Health recommends:3
  • Don’t smoke
  • Eat a diet high in fruits and vegetables
  • Exercise regularly
  • Maintain a healthy weight
  • Drink alcohol only in moderation
  • Get enough sleep
  1. Connect and reconnect. Sheltering in place may keep you safe from the virus, but isolation can have negative mental health repercussions. On the PsychCentral blog, Susan Zinn recommends interacting with neighbors from a safe distance, sharing a wave and a smile on daily walks, and participating in digital family get-togethers which may lift your spirits.4

No one knows how long the pandemic will last or what life will be like in the years ahead. Coping with uncertainty is easier when you take control of things you can influence.

Cooking Is Chemistry

If you recently began a new hobby, like baking, to help ease your mind and lift your spirits, why not create a teaching opportunity? All you need is delicious cupcakes, toothpicks, and some berries to create a potential home-science lesson for stay-at-home kids or grandkids.

Building Cupcake Molecules

Ingredients

12 cupcakes with different colors of frosting

3 kinds/colors of berries or marshmallows

Designate each color of frosting as an element (e.g., brown is carbon, blue is oxygen).

Designate fruit/marshmallows as elements, too.

For H2O cupcakes: Take a blue/oxygen cupcake and use toothpicks to attach two hydrogen raspberries (or a specific color of marshmallow) to mimic the structure of a water molecule.

For CO2 cupcakes: Connect two blue/oxygen cupcakes using toothpicks to attach a single carbon blueberry (or a specific color of marshmallow) to mimic the structure of carbon dioxide molecules.

For CH4 cupcakes: Take one brown/carbon cupcake and use toothpicks to attach four hydrogen pineapple chunks (or a specific color of marshmallow) to mimic the structure of a methane molecule.

You can find simple lessons for teaching elements and molecules online. When you tire of making molecules, enjoy your delicious treats!

What Do You Know About 80s Music?

Remember the 1980s? The Cold War came to an end. Computers and mobile phones began to make their way into homes and businesses. The average cost of a new home at the start of the decade was about $69,000. By 1989, it had risen to $120,000. And then there was the music. Love it or hate it, see what you know about 80s music by taking this brief quiz:

  1. What was Gladys Knight’s nickname?5
    1. Songbird Supreme
    2. Empress of Soul
    3. Queen of Funk
    4. Queen of Soul
  1. What 1982 song by The Clash was re-released in 1991 and became a #1 single in the United Kingdom?6
    1. Should I Stay or Should I go?
    2. We are The Clash
    3. London Calling
    4. Rock the Casbah
  1. Which musician/group was named top country artist of the 1980s?7
    1. Hank Williams Jr.
    2. Reba McEntire
    3. The Judds
    4. Alabama
  1. In which band did ‘The Bog Man’ Clarence Clemons play saxophone?8
    1. Pink Floyd
    2. Bruce Springsteen and the E Street Band
    3. Foreigner
    4. George Thorogood and the Destroyers

Looking for Words of Wisdom for Graduates?

Parents and grandparents have been searching for the right words to offer graduates of all ages who are transitioning into their next stage of life. There have been some great commencement speeches in 2020 and in previous years. Here are excerpts from some speeches you may want to read for inspiration:

“And, the biggest regrets of my life are of those times when I did not have the courage to embrace the truth. Now, telling the truth does not mean that everything will work out. Actually, it sometimes doesn’t. I’m not asking you to tell the truth, because it will always work out, but because you will sleep well at night. And, there’s nothing more beautiful than to wake up every day holding in your hand the full measure of your integrity.”

–Novelist Chimamanda Ngozi Adichie, Harvard, 20189

“But, if your cause is good and decent and worthy and honorable and has the possibility of saving even one of God’s creatures, then you must do what all heroes do. You must summon the courage to fight and fight hard for your convictions. You must yell them from the mountaintop. You must shout them from the lectern. You must write in bold, cursive, and underlined phrases. You must bring your convictions out from the darkness and the subtlety of your heart – into the light of day. They must be made public and challenged and confronted and argued.”

–Retired U.S. Navy Admiral William McRaven, MIT, 202010

“What happens next on the field is what transforms a bunch of individual women into a team. Teammates from all over the field rush toward the goal scorer. It appears that we’re celebrating her: but what we’re REALLY celebrating is every player, every coach, every practice, every sprint, every doubt, and every failure that this one single goal represents. You will not always be the goal scorer. And, when you are not – you better be rushing toward her. Women must champion each other.”

–FIFA Women’s World Cup champion Abby Wambach, Barnard College, 201811

“I wish you bad luck, again, from time to time so that you will be conscious of the role of chance in life and understand that your success is not completely deserved and that the failure of others is not completely deserved either…I hope you’ll be ignored so you know the importance of listening to others, and I hope you will have just enough pain to learn compassion. Whether I wish these things or not, they’re going to happen. And, whether you benefit from them or not will depend upon your ability to see the message in your misfortunes.”

–Supreme Court Justice John Roberts, Cardigan Mountain High School, 202012

We hope you find just the right words for your graduates.

Quiz Answers:

  1. B – Empress of Soul
  2. A – Should I Stay or Should I Go?
  3. D – Alabama
  4. B – Bruce Springsteen and the E Street Band

 

Sources:

1 https://www.kff.org/coronavirus-covid-19/issue-brief/the-implications-of-covid-19-for-mental-health-and-substance-use/ (or go to https://peakcontent.s3-us-west-2.amazonaws.com/Peak+Documents/LN_3rd_Qtr_2020_KFF-The_Implications_of_COVID-19_for_Mental_Health_and_Substance_Use.pdf)

2 https://www.cdc.gov/coronavirus/2019-ncov/daily-life-coping/managing-stress-anxiety.html

3 https://www.health.harvard.edu/staying-healthy/how-to-boost-your-immune-system

4 https://psychcentral.com/blog/the-importance-of-staying-connected-while-practicing-social-distancing/

5 https://en.wikipedia.org/wiki/Gladys_Knight

6 https://www.triviaquestionss.com/80s-trivia-question-and-answer/

7 https://theboot.com/top-1980s-country-artists/

8 https://www.triviawell.com/questions/classic-rock-music

9 https://singjupost.com/full-transcript-chimamanda-ngozi-adichies-harvard-2018-speech/

10 http://news.mit.edu/2020/william-mcraven-commencement-address-0529

11 https://barnard.edu/commencement/archives/2018/abby-wambach-remarks

12 https://time.com/4845150/chief-justice-john-roberts-commencement-speech-transcript/

 

This material was prepared by Carson Coaching. Carson Coaching is not affiliated with the named broker/dealer or firm.

Mortgage Rates Fall to Record Low

Economic Blog

Nearly four months ago, in late February, the 10-year Treasury yield broke to its lowest level ever, undercutting the record lows from 2016 of 1.32%. Over the following two weeks, as fears surrounding the COVID-19 pandemic intensified, interest rates experienced an unprecedented collapse, with the yield on the 10-year Treasury note eventually trading as low as 0.31% on March 9 (Bloomberg). However, consumers who rushed to refinance loans in mid-March may have been surprised to find that mortgage rates, which typically track the path of longer-term Treasury rates, actually spiked significantly during that time.

So what happened? Well, as stress appeared in nearly every funding market in the world, the average spread, or additional yield relative to risk-free rates, that investors demanded for mortgage-backed securities (MBS) expanded significantly, more than offsetting the decline in longer-term Treasury yields. Since then, as the Federal Reserve (Fed) has stepped in to support numerous areas of the market, including renewing MBS purchases, MBS spreads have declined, while Treasury yields have remained low.

As shown in the LPL Chart of the Day, this confluence of events sent the average rate on a 30-year fixed rate mortgage to its lowest level ever on Friday, at just 3.30%.

“Low mortgage rates may be here for a while,” said LPL Financial Senior Market Strategist Ryan Detrick. “Fed buying is supportive, and spreads remain attractive relative to other quantitative easing periods, which could provide some cushion in the event that Treasury yields rise in the second half of the year.”

For fixed-income investors, MBS remains one of our preferred areas for diversification in portfolios, a topic we explored in more depth last month.

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This Research material was prepared by LPL Financial, LLC.

Mortgage-backed securities are subject to credit, default, prepayment, extension, market, and interest rate risk.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

  • Not Insured by FDIC/NCUA or Any Other Government Agency
  • Not Bank/Credit Union Guaranteed
  • Not Bank/Credit Union Deposits or Obligations
  • May Lose Value

The Best Quarter Since 1998

Market Blog

What a quarter the second quarter was, with the S&P 500 Index adding 20.0%, for the best quarter since 1998 and the best second quarter since 1938. Of course, stocks fell 20% in the first quarter, so what we really have is a bad case of whiplash in 2020 thus far.

“A 20% quarterly gain is quite rare, but the catch is previous large quarterly gains have actually led to continued strength,” according to LPL Financial Senior Market Strategist Ryan Detrick. “In fact, a quarter later stocks have been higher the past 8 times after gaining at least 15% during the previous quarter.”

As the LPL Chart of the Day shows, future strong returns are quite normal after a big quarter. Although it might not seem likely given the headlines and magnitude of the current bounce, it is important to be aware that extreme strength usually begets more strength.

View enlarged chart.

2020 is halfway over, which means the third quarter is upon us. Historically, the third quarter has been the weakest quarter of the year.

View enlarged chart.

Breaking it down more though shows that July has been actually the strongest month during the summer. August and September have tended to be troublesome and dragged the third quarter down.

View enlarged chart.

For more on why what we’ve seen recently is extremely rare, yet could lead to continued gains, read this recent blog post.

 

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

  • Not Insured by FDIC/NCUA or Any Other Government Agency
  • Not Bank/Credit Union Guaranteed
  • Not Bank/Credit Union Deposits or Obligations
  • May Lose Value